Be prepared! - SMCR is on the horizon
07 December 2018
By Claire Aynsley, Head of Regulatory Compliance & Standards
Let us start with a simple fact: the new Senior Managers and Certification Regime (SMCR) is not solely a compliance issue; it will also significantly impact a company’s Human Resources (HR) function as well as requiring input from legal personnel.
Transitioning into the SM&CR regime is a project that covers all areas of your business. It is important that businesses engage their HR teams in the certification processes now, as there is a great deal of work to be done.
Those companies that have already started the process have begun by mapping out the roles and responsibilities of senior managers, reviewing the accuracy of their job profiles, and establishing whether the individuals are appropriately qualified to occupy the roles under the new regime.
This means, in many cases, identifying where further training may be required, and ensuring each individual fully understands the role they are being given, and the responsibility and accountability that comes with it.
This is, of course, already creating some cultural and motivational issues, and demonstrates why it will be imperative to harness the advice and guidance of HR and legal professionals. Contracts, for example, may have to be reviewed, and difficult conversations held around future remuneration, given the uplift in responsibility.
How each manager is appraised will undoubtedly change, along with their individual objectives. Failure to involve and engage with senior managers early in the process is likely to result in HR-related issues down the line. Asking senior managers to assess and understand their role and responsibilities, and demanding that they demonstrate their fitness and competence to carry out that role, is a delicate balancing act requiring sensitivity.
A senior manager who is moved out of a role or effectively ‘demoted’, because they are seen as not having the requisite skills under the new regime, is unlikely to be happy and likely to think they have been treated unfairly. This could easily lead to a tribunal. Similarly, cases where an individual decides that they do not want to be part of the regime, and given the additional responsibility, will also have to be handled carefully. Individuals who will be certificated will
appear on a public register, and some may be uncomfortable with having their names so readily available.
And what of those staff who decided to leave? Again, not only will their departure need to be professionally managed, but so too the recruitment process to find their successor. Both will also impact not just a company’s operational efficiency, but also the bottom line; resignations and recruitment both come with a price attached.
The SMCR does not just impact individuals. All staff members apart from ancillary employees, such as a receptionist or cleaner, will be bound by the new Conduct Rules. Even though such rules appear to be quite general (for example the need to act with integrity, act with due care, skill, and diligence, be open with regulators, pay due regard to the interests of customers and treat them fairly, observe proper market conduct) every firm will need to demonstrate these rules have been properly communicated and embedded, with culture being the core focus.
Every member of staff will be required to evidence adherence to Conduct Rules, if challenged. And the word on the street is that the Financial Conduct Authority (FCA) has already started to ask firms of their awareness. Training, once again, will be required for all members of staff, as well as ongoing monitoring. Senior managers will also need to work within the second-tier conduct rules, such as taking reasonable steps to ensure that the area of the business they are responsible for is controlled effectively, and complies with relevant requirements and standards. They will also be responsible for being able to delegate their responsibilities to a further ‘appropriate person’ if needed. Conduct rule breaches by any member of staff will need to be identified and reported to FCA.
The countdown to full implementation of the SMCR regime has begun. Do not ignore it, and do not under-estimate the amount of work involved or which teams you need to include. This is not one that can just be parked in compliance!
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